• Nouman Afgan Department of Quantitative Economics, Vienna University of Economics and Business, Vienna
  • Klaus Gugler Department of Quantitative Economics, Vienna University of Economics and Business, Vienna
  • Robert Kunst Department of Economics, University of Vienna
Keywords: corporate governance, ultimate ownership, institutional shareholdings, endogeneity of ownership, and investment performance


This paper analyzes the effects of ownership concentration on investment performance in a large sample of Pakistani publicly-listed companies from 1997 to 2007. Special attention is directed to statistical methods from the field of panel-data econometrics, which are able to deal with endogeneity problems and with structural reverse causality. The preferred estimator that is based on firm fixed effects insinuates that the voting rights of ultimate shareholders affect Tobin’s q unambiguously negatively, whereas the squared voting rights affect it unambiguously positively. This implies a U-curved relationship between Tobin’s q and voting rights concentration with a turning point at 45%. More than 75% of the companies fall in the upward sloping part of the curve. While positive incentive effects are at work in Pakistan, financial market development is retarded by the reluctance of minority shareholders facing dominant shareholders to hold small stakes in listed companies. Consistently, institutional shareholders do not yet provide a positive monitoring role in Pakistan.


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